Midas Reports First Quarter Earnings of $0.07 Per Diluted Share

ITASCA, Ill.--Midas, Inc. (NYSE: MDS) reported net earnings of $1.0 million—or $0.07 per diluted share—for the first quarter ended April 4, 2009, compared to $1.2 million—or $0.09 per diluted share—in the first quarter of 2008.

Daily car counts at Midas shops in the United States increased by six percent during the quarter and revenues from oil changes and tires were up by 23 percent and four percent, respectively.

“Despite the six percent increase in customer traffic, our customers continued to defer non-essential repairs and maintenance, which led to a nine percent decline in the average repair order. As a result, overall comparable shop sales in U.S. Midas shops were down 3.4 percent during the quarter,” said Alan D. Feldman, Midas’ chairman and chief executive officer.

“Marketing efforts in the first quarter focused on building traffic at Midas shops through aggressive local promotions. Network radio commercials and direct mail print materials featured a variety of value-priced offers to attract new customers to try Midas services,” he said.

“The goal of our local value offers is to build on-going relationships with new customers by providing exceptional service during their initial visits for routine services such as oil changes, so they will come back for all of their maintenance and repair needs,” Feldman said. “We believe that building our customer base now when repairs are being deferred will pay dividends in the future when the economic climate improves.”

Feldman said that comparable shop brake sales declined by eight percent in Midas shops in both the U.S. and in Canada. Comparable shop exhaust sales were down by 14 percent in the U.S. and by 11 percent in Canada.

“The six percent increase in daily car count in the U.S. was offset by a nine percent decline in the average ticket as a result of the shift in service mix from brakes and exhaust to oil changes,” Feldman said.

“Comparable shop sales continue to be the weakest in the southern and western areas. The South Central region declined by 4.7 percent, the Southeast region was down by 3.8 percent and the West region was down by 7.6 percent,” Feldman said. “We also experienced a 5.4 percent decline in Canada, where the economy has begun to show economic weaknesses similar to those in the U.S.”

First Quarter Results

Total sales and revenues for the first quarter were $44.3 million, compared to $44.8 million last year.

Midas’ franchising revenues were $13.0 million for the quarter, down from $13.3 million in 2008. The $1.0 million increase in royalties from the recently acquired SpeeDee Oil Change business was more than offset by the $1.3 million decline in U.S. and international Midas royalties.

Real estate revenues were $8.3 million compared to $8.7 million last year. The decline in real estate revenues was the result of fewer rent-producing shops in operation. There were 557 leased Midas shops operating in the U.S. and Canada at the end of the first quarter this year, down from 588 in 2008.

Revenues from retail sales at company shops were $15.6 million during the quarter, up from $14.9 million in 2008. The increase is the result of operating more company shops in the first quarter this year. There were 98 company-operated Midas shops in 2009, compared to 95 last year. Comparable shop sales at Midas company shops were down 1.6 percent for the quarter. There were also two company-operated SpeeDee shops in the first quarter of 2009.

Replacement part sales and product royalties were $6.1 million, down from $6.7 million a year ago due to lower tire and equipment sales to franchisees.

Revenues from the company’s R.O. Writer software business were $1.3 million in the first quarter, compared to $1.2 million last year.

First quarter operating income was $3.7 million, compared to $4.0 million for the same period a year ago. The decline in operating income was primarily the result of the North American comparable shop sales decline, which led to lower franchise royalties, as well as an increased operating loss at company-operated shops. This impact was partially offset by the inclusion of SpeeDee operating results in the first quarter.

Selling, general and administrative (SG&A) expenses were $13.2 million during the first quarter, compared to $13.3 million in 2008. This reduction occurred despite the fact that the fiscal 2009 SG&A includes approximately $500,000 related to the recently acquired SpeeDee business.

Interest expense for the quarter was $2.0 million, down from $2.2 million in 2008. The company’s bank debt was $88.0 million at the end of the first quarter, up from $83.6 million at the end of 2008. The increase was the result of the timing of certain advertising expenditures and other payments, which caused an $8.1 million decrease in accounts payable and accrued expenses.

Midas recorded income tax expense of $0.8 million during the first quarter, flat with the first quarter of 2008. The company does not pay a significant amount of income taxes because of net operating loss carry forwards of approximately $73 million from previous years.

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